The chart above, courtesy of Bianco Research, gives you a sense of how much enthusiasm there has been for Bonds, at the tail end of a 30 year bull run in fixed income, following the 2008 credit crisis and market collapse.

Note that even after the equity market began to rally, it was still sold off by the public.

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

1. A lot of mutual funds (>50% of net flows) are bought through qualified plans and especially 401(k). Even more is through allocation models derived from financial advisory firms (wirehouses, planners, RIAs, brokers etc). They all use allocation funds (target date, risk etc) to get their bond and equity exposure so they will have participated in the recent rally, albeit through a more indirect approach.
2. Also the bulk of mutual funds buyers are in the dreaded boomer cohort and were seriously underweight bonds for much of the last 10 years.
3. Finally, 401(k) flows are notoriously seasonal. Participants max out towards the end of the year and start up aging in January…and you can see the pattern (just) in the chart.

This may be no more than prudent rebalancing and not the contrarian indicator the pros think it is.

Almost of the flow into bonds is into corporates and munis. Treasuries have seen little net flow by comparison (i.e., it’s not about risk, it’s about income). I agree with Dave Rosenberg that we are in a secular change to a desire for income over growth (as always, boomers rule).

Also, on the equity chart if one connects the tops of each bar, turning the chart into a line chart instead of a bar chart, the classic pattern of a downtrend (lower highs, lower lows) will be more evident. So does the downtrend continue or, as housing prices turn down, world governments adopt austerity budgets (in the west) or raise interest rates (in the east) are we about to party like it’s 1998?

They would show up….my point is only that the flows don’t (I think) reflect optimism/pessimism about bonds or equities by retail investors. Or that they show up late to very party. More the rebalancing of assets in multi-allocation models. Bonds were underweight, hence the flows, and investors got some equity kicker through the equity exposure.

I suppose it’s giving ma and pa kettle too much credit to think that maybe they get it, after a decade of 0% returns buying and holding like the experts said to, while all the middle men and fund managers got fat.

It might be they are simply not playing the equity bubble game any more. Even Bernanke admits that he’s trying to create a “wealth effect,” i.e. another bubble to replace the last one.

Of course, there are some other factors, some of which have been mentioned, like the fact that most boomers were horribly overinvested in stock funds and are rebalancing what’s left and what’s still coming in for those still with jobs.

There is also the phenom that many of those who have lost jobs are having to use what little they had in retirement to pay for things like housing and food. And there are stories of others still employed using 401k’s to pay house notes because their loans reset.Since most retirements were in stock funds, it makes sense that the money is coming from stock funds.

African television stations are now showing ‘Sponsor an American Child’ commercials!

Wives are having sex with their husbands because they can’t afford batteries.

I ordered a burger at McDonald’s and the kid behind the counter asked, “Can you afford fries with that?”

CEO’s are now playing miniature golf.

Exxon-Mobil laid off 25 Congressmen.

My ATM gave me an IOU!

A stripper was killed when her audience showered her with rolls of pennies while she danced.

I saw a Mormon polygamist with only one wife.

I bought a toaster oven and my free gift with the purchase was a bank.

If the bank returns your check marked “Insufficient Funds,” you have to call them and ask if they meant you or them.

McDonald’s is now selling the 1/4 ouncer.

Angelina Jolie adopted a child from America .

Parents in Beverly Hills fired their nannies and learned the names of their children.

My cousin had an exorcism but couldn’t afford to pay for it, and they re-possessed her!

A truckload of Americans was caught sneaking into Mexico .

Motel Six won’t leave the light on for you anymore.

A picture is now only worth 200 words.

They renamed Wall Street ” Wal-Mart Street .”

When Bill and Hillary travel together, they now have to share a room.

One of the casinos in Las Vegas is now managed by Somali pirates.

And, finally…I was so depressed last night thinking about the economy, wars, jobs, my savings, Social Security, retirement funds, etc., I called the Suicide Hotline. I got a call center in Pakistan , and when I told them I was suicidal. They got all excited, and asked if I could drive a truck.

I love it when smart guys–with a big audience, sound absolutely certain that a 30 yr trend is over….it’s comforting to know a lot of people could be wrong. Kinda like Jim Rogers bearish bond call back in 1988.!

When people need to re-mortgage they often can’t. With loss of job comes lover income and you may not qualify for the new loan. A lot of people are under-water and would have to take cash to the table to re-mortgage.

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About Barry Ritholtz

Ritholtz has been observing capital markets with a critical eye for 20 years. With a background in math & sciences and a law school degree, he is not your typical Wall St. persona. He left Law for Finance, working as a trader, researcher and strategist before graduating to asset managementRead More...

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